The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 for children under the age of 6 and to $3,000 per child for children ages 6 through 17 (i.e. it now includes 17-year-olds). What’s more, the credits are now fully refundable (for those who are eligible – please see below.)
Before 2021, the credit was worth up to $2,000 per eligible child under the age of 17, $1,400 of which was refundable, meaning that if the credit is not needed to reduce the taxpayers federal tax liability, it is refunded via check or direct deposit.
The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of $75,000 or less for singles, $112,500 or less for heads of household and $150,000 or less for married couples filing a joint return and qualified widows and widowers.
Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every $1,000 in modified AGI. Over income thresholds of $200,000 ($400,000 joint), the $2,000 credit is also reduced.
Now, here is the fine print for expats, which is actually very clearly stated in the next sentence on the IRS website page entitled Advance Child Tax Credit Payments in 2021:
“Advance payments of the 2021 Child Tax Credit will be made regularly from July through December to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50% of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet.)”
But since the advance payments are based on prior year returns, it is possible that ineligible families may start receiving (or may already have received) payments like some of our clients have, and it is expected that they will have to pay back on their 2021 tax return, the amounts they received which exceed the regular, i.e. original, refundable credit they are entitled to.
How can this happen? One example is where a taxpayer living abroad continues to use a US address on his or her US tax returns for various reasons. Or perhaps a family made Aliyah in 2020 or 2021 and haven’t filed their 2020 return yet, so the IRS only has a US address for them.
It is for these and other reasons that the IRS created the Child Tax Credit Update Portal to enable families to update their bank account information to receive their monthly Child Tax Credit payment via direct deposit (those without direct deposit receive paper checks.) And perhaps more important for us, the tool also allows families to unenroll from the advance payments to stop receiving them. There is also a non-filer tool there, for families that are eligible for the credit in spite of the fact that they are not required to file tax returns.
Who should unenroll?
- Those families who are eligible, but who prefer to wait until the end of the year and receive the entire credit as a refund when they file their 2021 return.
- A family that is not qualified for the Child Tax Credit or believes they will not qualify when they file their 2021 return. This could happen if, for example:
- Their income in 2021 is too high to qualify them for the credit.
- Someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021.
- Their main home was outside of the United States for more than half of 2021.
Note that although a family can stop payments anytime, in order to stop all payments starting in August and the rest of 2021, they must unenroll by August 2, 2021.
It should also be noted that married filing joint taxpayers both need to unenroll. If one spouse does not unenroll, they will get half of the joint payment they were supposed to receive with their spouse.
